Settlements in Portland, Spokane

Article excerpt

Recent financial settlements filed in the bitter and drawn-out bankruptcy proceedings in the Portland, Ore., archdiocese and the Spokane, Wash., diocese will compensate victims of priestly sexual abuse while allowing both dioceses to emerge financially intact. By pursuing bankruptcy reorganization, both dioceses avoided dozens of civil trials that would have likely resulted in hundreds of millions in payouts, testimony by high-ranking church officials about their roles in the sexual abuse cover-up, and the public release of thousands of pages of secret church documents.

Spokane and Portland became focal points in the fallout of the Catholic church scandals over the last two years, as legal battles tackling such issues as parish ownership and individual culpability played out in court hearings, parish hall gatherings and backroom board meetings.

The issue of parish ownership--whether individual churches and schools are owned by a diocese and therefore collateral in any settlement--loomed largest in both bankruptcy proceedings. The dioceses argued that individual parishes owned the property, but judges in both cases ruled that the dioceses, and not parishioners, are sole owners of the schools and church buildings.

The dispute over ownership drew bitter reactions from parishioners and victims. "There are no warm and fuzzy feelings here," Tim Kosnoff, an attorney who represents 101 Spokane victims, said last summer as mediation talks once again stalled. "With an exception of maybe one or two people, I don't think any of my clients would lose sleep over a parish being bulldozed and replaced with a 24-hour fitness center."

Indeed, priests and parishioners in both dioceses fretted that their diocese could be the first to be liquated since the sex scandals erupted in 2002.

"I've heard the phrase 'death spiral' quite a number of times," Fr. Edgar Borchardt, pastor of Sacred Heart Parish in Pullman, Wash., said during an interview last summer. "There's a growing belief that something cataclysmic could occur."

But according to the outlined agreements released by Spokane and Portland church officials, diocesan insurance carriers will account for major portions of both payouts, and only a handful of parishes will serve as collateral.

"You don't like to say there are winners or losers in these cases," said Charles Zech, an expert in church finance at Pennsylvania's Villanova University. "But compared to what could have been the worse case scenario--huge settlements and the sale of parish properties affecting the worship life of the diocese--there's no doubt about it, the church made out very well in both these cases."

In July 2004, Portland became the first American archdiocese to take the step of filing for Chapter 11 Reorganization in Federal Bankruptcy Court as a result of the sex abuse scandals. According to federal law, the diocese had to submit a reorganization plan, which included financial settlements with all sexual abuse victims, before it could emerge from bankruptcy. If settlements could not be reached, a federal judge could dissolve the bankruptcy and creditors would head back into state court.

Archbishop John G. Vlazny entered the archdiocese into bankruptcy just as two civil trials seeking hundreds of millions in financial settlements over alleged clerical sex abuse were set to begin. Finally, in December of last year, U.S. District Court Judge Michael Hogan, one of the two mediators assigned to the Portland case, outlined a $75 million plan that would compensate more than 150 victims. Archdiocesan insurance carriers will cover nearly $.52 million of the proposed settlement, with the rest of the settlement being funded by archdiocesan controlled assets--not including Portland's 124 Catholic schools and churches. The settlement plan was filed in U.S. Bankruptcy Court Dec. 18.

Some 20 victims have yet to agree to the settlement and may still pursue civil trials. …